Update – The VAT treatment of hospitality and leisure gift vouchers

At his Summer Economic Update in July, the Chancellor announced a temporary five per cent rate of VAT for certain goods and services in the hospitality and leisure sectors, which came into effect on 15 July 2020 and applies until 12 January 2021.

Meanwhile, alcoholic drinks and the use of leisure and spa facilities remain subject to the standard 20 per cent rate of VAT.

This means that VAT-registered businesses in the hospitality and leisure sectors may need to account for VAT in respect of gift vouchers differently as they could be redeemable against goods or services subject to different rates of VAT.

Businesses in this position will need to account for VAT on redemption rather than issue until 12 January 2021.

Vouchers issued before the reduced rate of VAT came into effect should be accounted for at 20 per cent, even if they are redeemed against goods or services that are subject to the five per cent rate and even if you are processing those vouchers now.

Please contact us today for detailed advice.